A deepening recession and banking stress tests could find Italy's mid-sized lenders short of billions of euros, putting the state on the hook for a new wave of cash calls and triggering an overhaul of how they do business.Even ahead of the European stress tests, expected to take place when or shortly before the European Central Bank (ECB) takes over direct supervision of euro zone banks next year, Italy's smaller banks are under pressure to boost their balance sheets after a Bank of Italy audit of problematic loans and to meet stricter Basel 3 capital rules. Bad loans in Italy have been climbing at an annual rate of 20 percent in recent months.In the port city of Genoa, birthplace of modern banking in the 15th century, regional market leader Carige is raising 800 million euros ($1 billion), equivalent to two thirds of its market value, by selling assets to boost its capital.With a core tier one ratio of 6.7 percent, Carige's ability to absorb losses is among the weakest in Italy."Initi...